This article was first published in the Ernst & Young Indirect Tax Briefing, Issue 5, August 2012. It was then published online here. The E-invoicing Platform acknowledges al IP rights of Ernst & Young.
The ability to issue and receive VAT invoices in electronic format will likely bring a number of advantages to Russian VAT taxpayers, including improved cash flow and more efficient VAT compliance.
At the same time, the change to electronic invoicing may create a number of issues for VAT taxpayers that must be addressed to minimize disruption to the business and the risk of errors and penalties.
The boring bit: Russia’s legislative provisions roadmap
Federal Law No. 229-FZ of 27 July 2010 introduced relevant amendments into the Tax Code. Forms of the electronic documents were set out in Decree No. 1137 of the Russian Government of 26 December 2011 and the procedure for the exchange of VAT invoices in electronic format was set out in Order No. 50n of the Ministry of Finance of 23 April 2011.
Federal Tax Service Order MMV-7-6/138, “Concerning electronic format of the VAT invoice, journal of VAT invoices received and issued, purchase ledger and sales ledger, additional sheets to purchase ledger and sales ledger” (the Order), was issued on 5 March 2012.
It was registered by the Ministry of Justice on 11 April 2012 and was officially published on 12 May 2012 with an implementation date for the new provisions of 23 May 2012.
The Order should be the final subordinate act in the process of establishing electronic VAT invoicing and should allow for the electronic exchange of VAT invoices. Once introduced, electronic VAT invoices should facilitate the introduction of the electronic exchange of other documents (e.g., primary documents).
In this connection, the Federal Tax Service recently adopted Order MMV-7-6/172 of 21 March 2012, determining the recommended electronic formats for a consignment note and an act of acceptance.
Implications of recent e-invoicing changes to VAT taxpayers
The exchange of VAT invoices in electronic format is likely to bring a number of advantages for VAT taxpayers, including:
- Improving VAT cash flow
- Reducing costs (on workflow management and administration)
- Allowing better management control of VAT invoicing
- Allowing VAT invoices to be issued more quickly and easily
Despite these benefits, implementation of electronic document exchange may also create issues. As the VAT invoice is the fundamental VAT accounting document, the move to electronic invoicing is likely to have an impact on various aspects of taxpayers’ activities, in particular:
- Tax accounting
- Relationships with counterparties
- The design and control of internal processes
- Information technology (e.g., modification and adaptation of ERP systems, etc.)
Assessing the move to electronic invoicing
As we have indicated, adopting the electronic exchange of VAT invoices and other primary documents may ease and improve accounting processes but it may also increase certain tax risks (e.g., the risk of VAT recovery being challenged).
Therefore, it is essential for VAT taxpayers who would like to implement electronic document exchange to carefully analyse the likely impact of doing so. A thorough analysis of moving to electronic VAT invoicing in Russia may include:
- Analysing the impact of electronic invoicing on the business, processes, customers, etc.
- Identifying and quantifying risks and costs for upgrades, improvements, IT solutions, etc.
- Improving tax accounting methodology
- Developing or amending relevant internal policies, including tax accounting policies and other documents
- Designing a suitable process structure, including the process for controlling VAT invoices received in electronic formats
Or: check in with an e-invoicing service provider that is experienced in Russian e-invoicing.
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